Two councils sought business rates from landlords who had granted leases of empty premises to companies with no assets. The leases were genuine under property law. The question was whether they also made those companies the people entitled to possession for the purposes of business rates.
Non-domestic rates are charged on the occupier of property that is not domestic or, if the property is unoccupied, on its owner, subject to exceptions. Section 65(1) of the Local Government Finance Act 1988 defines the owner as the person entitled to possession. One exception, in the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008, applies where the owner is a company being wound up.
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The respondent companies were the registered owners of unoccupied commercial properties. They used one of two schemes, each involving a special purpose company with no assets or business. The owner granted that company a short lease, on the premise that the company then became the owner for rating purposes. Under one scheme the company was promptly placed in members’ voluntary liquidation so that the winding-up exemption could be relied on for as long as possible. Under the other it was later dissolved, so that the lease passed as bona vacantia to the Crown. The schemes had no business or other real-world purpose. Their only aim was to avoid business rates, and their effectiveness depended on delay before a liquidator or the Crown disclaimed the lease. It was common ground that the leases were not shams and, as a matter of property law, conferred a legal entitlement to possession on the companies.
Rossendale Borough Council and Wigan Council brought these claims as test cases for a larger group of similar claims. They alleged that the leases did not make the special purpose companies the owners within the 1988 Act, or alternatively that the companies’ separate legal personality should be ignored. On the defendants’ strike-out applications, Judge Hodge QC struck out the first allegation but not the alternative. The Court of Appeal, in a judgment of Henderson LJ with which David Richards and Baker LJJ agreed, struck out both. The councils appealed.
Whether the companies became entitled to possession
Lord Briggs and Lord Leggatt, with whom Lord Reed, Lord Hodge and Lord Kitchin agreed, treated the first issue as one of purposive interpretation, in the sense associated with the Ramsay line of cases. The court must construe the charging provision in the light of its purpose and then decide whether the facts, viewed realistically and in the round, answer the statutory description.
Empty-property rating is intended partly to contribute towards local services from which empty property benefits and partly to encourage the person who can bring property back into use to do so. The person made liable is therefore the person with the real ability to decide whether the property remains unoccupied. In an ordinary case, “entitled to possession” means the person who, as a matter of property law, has the immediate legal right to possession. On the unusual facts assumed here, that reading would defeat the legislation.
On the facts assumed for strike-out, the companies had neither the resources nor any practical role in deciding who occupied the properties. The landlords retained the practical ability to bring a lease to an end if a use appeared. The arrangements depended on the subsequent use of liquidation or dissolution. Those circumstances mattered when applying the statutory words to the transaction as a whole.
For rating purposes, the assumed facts supported the councils’ case that the landlords retained the relevant entitlement. This did not invalidate the leases as a matter of property law. It meant that the statutory claim could not be stopped before trial.
Piercing the corporate veil
The alternative claim depended on the leases having made the companies the owners, and invoked what Lord Sumption in Prest v Petrodel Resources Ltd called the evasion principle. The Supreme Court held that there was no basis for disregarding the companies’ separate personality. Even on the councils’ assumptions, the defendants were not the companies’ shareholders. Liability for rates accrues day by day. If a lease transferred ownership, it left the landlord’s existing liability untouched and caused a new liability to be incurred by the company. Causing a company to incur a liability, and relying on the fact that the liability is the company’s, is not an abuse justifying a new liability for its controller. The objectionable conduct lay in the later use of dissolution or liquidation, for which the law already provides remedies. The Court of Appeal was therefore right to strike out this part of the claims.
Verdict: The Supreme Court unanimously allowed the councils’ appeal on the interpretation of the rating legislation and restored those claims. The alternative claims based on piercing the corporate veil remained struck out. The Court did not make a final finding of liability for rates.
Source: Hurstwood Properties (A) Ltd and others v Rossendale Borough Council and another [2021] UKSC 16
